The Weekly Rundown: Trump Talks U.S.-China Trade Deal, Pacific Pact Set to Start and Merkel Plans Her Exit

8 MINS READNov 3, 2018 | 18:56 GMT
German Chancellor Angela Merkel speaks during an Oct. 29 news conference at the Christian Democratic Union party headquarters in Berlin.

German Chancellor Angela Merkel speaks during an Oct. 29 news conference at the Christian Democratic Union party headquarters in Berlin. Merkel announced that she will not stand for re-election as her party's leader in December, or as chancellor when her term expires in 2021. Merkel has been chancellor since 2005.


On the Record

I once said that I was not born as a chancellor. And I have never forgotten that.

German Chancellor Angela Merkel

On Our Radar

Mixed Signals From the White House on China. U.S. President Donald Trump has raised the idea of a trade deal with China in the offing, but we're taking this possibility with a grain of salt. With midterm elections impending and the stock market fluctuating, Trump's upcoming dialogue with Chinese President Xi Jinping at the G-20 summit this month in Argentina and talk of a trade deal are low-cost maneuvers to demonstrate to more anxious voters that the economic pain that comes with tariffs will be worth it in the end, and that he's still in control of the negotiation. The reality is that there are still massive gaps in the U.S. and Chinese negotiating positions and that the most that can be expected from the White House is a temporary truce on tariffs. Even then, Trump's threat of imposing tariffs on the remainder of Chinese imports could still come down after the Nov. 6 midterm vote. We'll be watching Xi's Nov. 5 speech at a Shanghai import-export forum for indications of how far Beijing is willing to go in liberalizing certain sectors and in expanding imports to help ease building trade pressure.

Beyond the trade pressure, the United States is also ramping up its campaign against Chinese industrial theft and espionage. We've already seen four indictments against Chinese companies in the past couple of weeks that have revealed elaborate Chinese operations to steal trade secrets in sensitive sectors like aerospace and semiconductor development. Don't expect the White House to let up on this pressure any time soon. In fact, it's just getting started.

CPTPP Crosses the Finish Line. With Australia's ratification, the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) will see the pact's first round of tariff cuts in 60 days. Vietnam is likely to become the seventh country to approve the 11-country deal next week, followed by the agreement's remaining four members. The next step will be to turn to vetting new member states. Colombia already has expressed interest in joining the pact, with speculation also centering on South Korea, the Philippines, Thailand, post-Brexit United Kingdom and Taiwan. The last of these, however, would face major headwinds given concerns about overly provoking Beijing, a major trade partner of most CPTPP countries.

... And More Hurdles Ahead in U.S. Trade Talks. The CPTPP's implementation despite the U.S. pullout puts Washington's array of bilateral trade negotiations in the spotlight. Trade competitors will now have enhanced access to Japan's lucrative agricultural market, giving the White House all the more reason to try and get a deal with Tokyo. We still have to see just how hard-line the White House will be in those talks on agricultural concessions that go beyond what Tokyo conceded in the CPTPP. Agriculture is also a big sticking point in the U.S.-European Union trade negotiation, which could be additionally hampered by a gap in scheduling expectations: The White House is aiming to issue negotiating guidelines to Congress by January 2019, but the European Union could see a delay in securing its negotiating mandate from member states with European Parliament elections schedule for May. This raises a scenario in which a frustrated White House imposes auto tariffs on the European Union, and then uses the potential for repealing them as leverage in negotiations.

A Prominent Prince Returns to the Kingdom. The return of Prince Ahmed bin Abdulaziz (one of the last living sons of Saudi Arabia's founder) to Saudi Arabia this week from his self-exile in London raises an important question about what role — either formally or informally — he will play in balancing against Crown Prince Mohammed bin Salman. This could entail calls by royal family members for Salman to return to a traditional consensus model for policymaking, which the crown prince has tried to weaken. The crown prince has only further entrenched his power in the wake of the Jamal Khashoggi affair, but he may want to keep his enemies close while trying to tamp down foreign pressure.

Sanctions Are Coming. U.S. sanctions on Iran's oil exports take effect Nov. 5 and the White House is showing a slight reprieve for at least eight countries (including China, India, Iraq, Japan, South Korea and Turkey) to continue importing some Iranian oil for a limited time while they continue to draw down purchases. We'll be looking for details on Nov. 5 on the duration of the waivers and volume allowances, though we expect most of the waiver recipients to have to cut imports by around 40 percent to 50 percent, if not more, as the United States tries to bring Iran's oil exports to zero. (Iran is still exporting more than 1 million barrels per day for now.) A decline in oil prices over the past few days on news of the waivers could be short-lived as the White House tries to drive ahead with its maximum pressure strategy.

A Crisis in Sri Lanka Reveals Sino-Indian Tussle. Sri Lankan President Maithripala Sirisena abruptly replaced Prime Minister Ranil Wickremesinghe with former pro-China President Mahinda Rajapaksa on Oct. 26. The move has triggered protests in Colombo, with supporters of Wickremesinghe demanding that Sirisena reconvene the suspended Parliament. Last year, Colombo signed over majority control of the Hambantota port to China on a 99-year lease, heightening India's concerns of Beijing snapping up strategic assets in countries along its periphery that are saddled with Chinese debt. India's options in thwarting Rajapaksa's return are limited, but we'll be watching to see how a likely vote of confidence plays out when Parliament reconvenes on Nov. 16.

On Our Minds

Auf Wiedersehen. Angela Merkel's announcement that she will not stand for re-election as the leader of her Christian Democratic Union (CDU) party in December, or as German chancellor when her term expires in 2021, marked the beginning of the end of an era in German politics. The biggest threat to Germany's governing coalition moving forward hinges on whether the Social Democratic Party (SPD) withdraws from the coalition in an attempt to rebrand itself as an opposition party. If we see a hollowing out of centrist positions, and if the CDU moves further to the right in policy, political compromises at the EU level between Germany and southern states are bound to get even more difficult. No matter what happens, Germany has entered a stage of political turbulence that will stress the Franco-German balance on the Continent and take the wind out of eurozone reform.

A Regional Shift Points to More Pressure on Venezuela. With Venezuela's internal crisis accelerating, new leaders in Brazil and Colombia could drive an important shift in how the region deals with the fallout. Brazilian President-elect Jair Bolsonaro and Colombian President Ivan Duque, both of whom share a more conservative and hard-line security view overall, could adopt a more interventionist approach against Venezuelan President Nicolas Maduro with some U.S. prodding and support. Colombia and Brazil will be focused on trying to stem the flow of Venezuelan refugees into their countries and mitigate the spread of disease fueled by Venezuela's collapsing health care system. Illicit gold mining to fund Venezuelan government finances may also spread over Brazil's northern border, leading to police and military raids against mining encampments. We'll be watching the dialogue among Duque, Bolsonaro and Trump closely for signs of potential coordination emerging.

How to Maintain Autonomy in the Gulf. Tiny Gulf states like Oman and Qatar have to be quick and clever to find ways to fend off their more powerful neighbors. Both are seizing on the interminable Palestinian-Israeli peace process as part of that strategy. Qatar is helping the United States and Israel manage Hamas in Gaza and prevent another Gaza war, while Oman is stepping in to help host West Bank-based Palestinian Authority and Israeli mediations. (Israel is all too eager to keep up the momentum behind its growing Gulf relationships.) These efforts matter less for the prospects of a "deal of the century" between the Israelis and Palestinians (we aren't holding our breath) than for what they reveal about how these oft-overlooked powers can leverage their neutrality to showcase their relevance to Washington. This especially becomes a useful tactic when Saudi Arabia and the United Arab Emirates are trying to use their special relationship with the White House to punish any state with a working relationship with Iran.

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On Our Calendar

In the coming week, the United States holds congressional, state and local elections, while Pakistani Prime Minister Imran Khan wraps up a four-day trip to China that included meetings with Chinese President Xi Jinping and Chinese Premier Li Keqiang. For more, see our Geopolitical Calendar.

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